If the MPC Is 0

question 80

Multiple Choice

If the MPC is 0.8 and government increases spending by $50 million, what will be the demand for goods and services generated by this increase?

• A) $10 million
• B) $40 million
• C) $62.5 million
• D) $250 million

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Definitions:

Miller-Orr Model

A model used in financial management to determine the optimal level for cash balances under uncertainty.

Uncertainty

The lack of predictability or certainty about outcomes, often considered in the context of investment or economic forecasts.

Cash Flows

Incoming and outgoing cash movements in a business or project, crucial for understanding its liquidity and operational efficiency.

Target Cash Balance

The optimal amount of cash that a company aims to hold at any given time to fulfill operational and transactional requirements.